Because of public ties between business secretary Lord Mandelson and Deripaska, the decision on the loan was made by the Ian Pearson, the trade minister.

"It must be up to the parent company, Gaz, to put up the funding to secure the business's future,' said Pearson. "The British taxpayer cannot be expected to pay for the company's losses."

The Department of Trade issued the following statement: "We have written to LDV and reiterated our view that the primary responsibility for supporting LDV and the management buy-out rests with Gaz, but in the absence of such support from Gaz, we cannot see a case for further assistance from the Government."

A spokesman said that the company has still not repaid a previous £24 million loan.